Summary of Significant Accounting Principles

3 Months Ended

Mar. 31, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies – MGE Energy and MGE.

a.Basis of Presentation.

This report is a combined report of MGE Energy and MGE. References in this report to "MGE Energy" are to MGE Energy, Inc. and its subsidiaries. References in this report to "MGE" are to Madison Gas and Electric Company.

MGE Power Elm Road and MGE Power West Campus own electric generating assets and lease those assets to MGE. Both entities are variable interest entities under applicable authoritative accounting guidance. MGE is considered the primary beneficiary of these entities as a result of contractual agreements. As a result, MGE has consolidated MGE Power Elm Road and MGE Power West Campus. See Footnote 3 of Notes to Consolidated Financial Statements under Item 8, Financial Statements and Supplementary Data, of MGE Energy's and MGE's 2019 Annual Report on Form 10-K (the 2019 Annual Report on Form 10-K).

The accompanying consolidated financial statements as of March 31, 2020, and for the three months ended, are unaudited but include all adjustments that MGE Energy and MGE management consider necessary for a fair statement of their respective financial statements. All adjustments are of a normal, recurring nature except as otherwise disclosed. The year-end consolidated balance sheet information was derived from the audited balance sheet appearing in the 2019 Annual Report on Form 10-K, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These notes should be read in conjunction with the financial statements and the notes on pages 54 through 107 of the 2019 Annual Report on Form 10-K.

b.COVID-19.

With the global outbreak of the Coronavirus Disease 2019 (COVID-19) and the declaration of a pandemic by the World Health Organization on March 11, 2020, U.S. governmental authorities have deemed electric and gas utilities critical infrastructure. MGE Energy therefore has an obligation to keep operating and maintaining its critical electric and gas infrastructure. On March 24, 2020, Wisconsin governor Tony Evers issued the "Safer at Home" order in an effort to limit business activities to essential services and encourage individuals to remain at home. On April 20, 2020, Evers released the "Badger Bounce Back" plan to reopen the Wisconsin economy in phases. MGE Energy and MGE's consolidated financial statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. MGE Energy and MGE considered the impact of COVID-19 developments on the assumptions and estimates used in the preparation of these financial statements and determined that there were no material adverse impacts on the results of operations for the first quarter 2020.

c.Cash, Cash Equivalents, and Restricted Cash.

The following table presents the components of total cash, cash equivalents and restricted cash on the consolidated balance sheets.

		MGE Energy				MGE
		March 31,		December 31,		March 31,		December 31,
(In thousands)		2020		2019		2020		2019
Cash and cash equivalents	$	17,451	$	23,481	$	3,321	$	3,196
Restricted cash		473		619		473		619
Receivable - margin account		1,870		1,714		1,870		1,714
Cash, cash equivalents, and restricted cash	$	19,794	$	25,814	$	5,664	$	5,529

Cash Equivalents

MGE Energy and MGE consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Restricted Cash

MGE has certain cash accounts that are restricted to uses other than current operations and designated for a specific purpose. MGE's restricted cash accounts include cash held by trustees for certain employee benefits and cash deposits held by third parties. These are included in "Other current assets" on the consolidated balance sheets.

Receivable – Margin Account

Cash amounts held by counterparties as margin collateral for certain financial transactions are recorded as Receivable – margin account in "Other current assets" on the consolidated balance sheets. The costs being hedged are fuel for electric generation, purchased power, and cost of gas sold.

d.Trade Receivables, Allowance for Credit Losses, and Concentration Risk.

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. A 1% late payment charge is recorded on all receivables unpaid after the due date. However, the 1% late payment charge was temporarily suspended in late March 2020 in response to the PSCW's COVID-19 order. MGE has also suspended disconnection or refusal of services to any customer, with limited exceptions, in response to the order. See Footnote 9.c. for further information.

The allowance for credit losses associated with these receivables represents our best estimate of the amount of probable credit losses in our existing accounts receivable. MGE manages concentration of credit risk through its credit and collection policies, which are consistent with state regulatory requirements. The allowance for credit losses is estimated based on historical write-off experience, regional economic data, review of the accounts receivable aging, and reasonable and supportable forecasts that affect the collectability of the reported amount. MGE has considered the effects of COVID-19 developments, including suspension of disconnections for non-payment, in its estimate of allowance for credit losses by applying data from historical recessions and other significant economic downturns. There was no material increase in the allowance for credit losses as of March 31, 2020, as a result of these developments. However, if adverse conditions continue for extended periods, they may result in a material increase in the allowance for credit losses in future periods. This potential increase cannot be reasonably estimated at this time. The PSCW issued a deferral accounting order for deferral of incremental COVID-19-related costs. Recovery of these costs will be addressed in future rate proceedings. See Footnote 9.c. for further information.

For the three months ended March 31, 2020, MGE recorded $0.9 million of reserves and $0.5 million in write-offs. As of March 31, 2020, MGE had a reserve balance of $3.7 million against accounts receivable.